In 2008, the Treasury Department issued the ???Intragovernmental Holdings??? account $254 billion in bonds (IOU???s), and in the first half of fiscal 2009 this account actually became a net seller of bonds. Because the account is not broken down by individual trust fund, it is difficult to see which specific trust fund liquidated their bonds, but we suspect it was Medicare. The benefits currently being paid out of Medicare are already running higher than its inflows, so the difference must have been made up by sales of its IOU bonds.
Obviously this is a very troubling development for the US, and unfortunately it is likely to get worse. This year???s Social Security fund is only expected to balance, which is bad news for the government. Along with Social Security, Medicare is one of the trust funds that should be posting surpluses right now in anticipation of the massive future commitments the retiring Baby Boomers will require. As it stands, Medicare is in an operating deficit in 2009 with premiums coming in at $14 billion and outlays totaling $348 billion.8 The difference will be supplemented by sales of its IOU bonds, which will ultimately add to the amount of new government debt that must be sold in fiscal 2009. We won???t speculate on what would happen to the Social Security program if new buyers for US debt disappeared, but we should all bear in mind that in that scenario the special-issue ???IOU???s??? in the ???Intragovernmental Holdings??? account would be rendered worthless, and the US Government???s social ???safety net??? would vanish.
